Raiffeisen Bank SA. Semi-annual update. CREDIT OPINION 6 September Update. Summary Rating Rationale

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1 CREDIT OPINION 6 September 16 Raiffeisen Bank SA Semi-annual update Update Summary Rating Rationale RATINGS Raiffeisen Bank SA Domicile Bucharest, Romania Long Term Debt WR Type Senior Unsecured Dom Curr Rating(s) WithDrawn Long Term Deposit Ba1 Type LT Bank Deposits - Fgn Curr Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Raiffeisen Bank SA's (Raiffeisen) Ba1/Not Prime deposit ratings incorporate: (1) the bank s standalone baseline credit assessment (BCA) of, () our assumption of high parental support from Raiffeisen Bank International (RBI; deposits Baa positive; BCA ) which does not result in an uplift due to the BCA of the parent and the subsidiary being at the same level, () the result of our Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by the different liability classes in resolution, and which leads to two notches of rating uplift for Raiffeisen s deposit ratings, and (4) our assumption of low likelihood of support from the Romanian Government (Baa, positive) in case of need, which results in no further uplift. The bank s (CR Assessment) is Baa(cr)/P-(cr). Raiffeisen s BCA of is supported by Romania s Macro Profile of Moderate-, and reflects the bank s good financial performance, capitalisation and liquidity, which it has maintained in recent years. The bank's senior unsecured debt rated by Moody's matured in July 16 and therefore their rating was withdrawn. Exhibit 1 Analyst Contacts Rating Scorecard - Key Financial Ratios Armen L. Dallakyan VP-Senior Analyst armen.dallakyan@moodys.com Aleksandar Hristov Associate Analyst aleksandar.hristov@moodys.com Simone Zampa VP-Sr Credit Officer simone.zampa@moodys.com Carola Schuler Managing Director Banking carola.schuler@moodys.com Source: Moody's Financial Metrics

2 Credit Strengths Established franchise with loan book quality better than the average for the Romanian banking system, although the new walkaway law creates risks Capitalisation is adequate, supported by good profitability Adequate liquidity and a deposit funded profile Credit Challenges Good profitability, although constrained by lower net interest margin and weaker than peers cost efficiency Rating The outlook on Raiffeisen's ratings is stable. Factors that Could Lead to an Upgrade Upward pressure on Raiffeisen Bank SA's ratings could develop (1) from a material improvement in the operating environment, and () if the bank achieves stronger loan book quality while maintaining good capital adequacy and profitability. An upgrade of RBI's BCA, could have positive rating implications, as it could lead to an uplift due to parental support. Any additional volumes of subordinated instruments implying higher protection for senior creditors and a lower loss given-failure in resolution, could also lead to an additional uplift for the deposit ratings of up to one notch. Factors that Could Lead to a Downgrade The bank's ratings could experience downward pressure as a result of substantial weakening in its profitability, erosion of its capital base and/or increase in asset risk. A multi-notch downgrade of RBI's BCA, albeit currently unlikely due to the positive outlook on its ratings, could exert negative pressure on Raiffeisen Bank SA's deposit and debt ratings. Key Indicators Exhibit Raiffeisen Bank SA (Consolidated Financials) [1] Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross loans / Due to customers (%) Avg [1] All figures and ratios are adjusted using Moody's standard adjustments [] Basel III - fully-loaded or transitional phase-in; IFRS [] Basel II; IFRS [4] Compound Annual Growth Rate based on IFRS reporting periods [5] IFRS reporting periods have been used for average calculation [6] Basel III - fully-loaded or transitional phase-in & IFRS reporting periods have been used for average calculation Source: Moody's Financial Metrics This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 6 September 16

3 Detailed Rating Considerations Established franchise with loan book quality better than the average for the Romanian banking sector, although the walkaway debt discharge law creates risks As at end-15, Raiffeisen had a market share of 8.% of total assets. The bank's portfolio is fairly balanced, with exposure to retail customers forming approximately 6% of gross loans, and around 67% of deposits, with the remaining proportion consisting of corporate and public sector clients. Although a significant proportion of the customer loans (on net basis), about 4%, are denominated in foreign currency (predominantly in EUR), we note that they are primarily financed through customer deposits rather than wholesale sources. Raiffeisen's credit profile is characterised with above average asset quality. The bank managed to avoid wider market deterioration as it carries much less exposure to the troubled Romanian SME sector and lower FX-denominated lending compared with the overall banking system. We calculate that Raiffeisen had an impaired loan ratio of 8.5% as of year-end 15, an improvement from 9.1% in 14 and 1.4% in 1. We note that the positive trend in asset quality is driven by the growing loan book and sale and write-off of problem loans. In comparison, the problem loans ratio for the banking system was 1.5% in 15. The bank also maintains an adequate level of provisions at 6% of impaired loans as of year-end 15. We expect that the good economic environment in Romania will be supportive for the loan book quality of banks for the remaining part of 16 and into 17. However, the recently introduced walk-away law is counterbalancing this as it increases asset risks and could result in higher defaults and losses on mortgages. The law allows most Romanian mortgage borrowers to opt for a strategic default, (i.e., defaulting on the debt while being financially able to service it) and be discharged of all financial obligations under the mortgage agreement. This could also lead to a slowdown in the growth momentum for mortgages granted outside the Prima Casa program (mortgages extended under this program are exempt from the scope of the aforementioned law). Raiffeisen bank recognised a significant amount of special provisions during the first half of 16 related to the potential expected costs from the law's impact. Capitalisation is adequate, supported by good capital generation Raiffeisen Bank has a good capital adequacy with a consolidated Tier 1 ratio of 1.9% and Total Capital ratio of 18.5% as at end-15. However, these ratios have declined from 15.1% and.%, respectively, as of year-end 14, following a substantial dividend payment in the amount of 1% of the prior year profits. The risks of further large dividend payments, coupled with increasing level of risk-weighted assets (as a result of loan growth) could result in a moderate decline in the capital adequacy ratio. To reflect this, we adjust the Capital score down by three notches to. Good profitability, although constrained by lower net interest margin and weaker than peers cost efficiency Raiffeisen Bank remains consistently profitable, although it has come under pressure as a result of the lower interest rate environment, competition and excess liquidity in the banking sector. We expect that profitability will continue to face challenges in 16 and into 17. To reflect this, we adjust the Profitability score down by one notch to ba1. During 15 the net interest income remained flat, as a result of similar decline in both interest income and interest expense, while net fee and commission income dropped by 7.4% year-on-year. In addition, the operating and personnel costs increased by 5.4% yearon-year, driven by higher IT expenses and legal charges combined with higher employee remuneration. As a result, the net profit for the year declined by 16.8% compared to 14, as the lower impairment charges (-8.% year-on-year) were not sufficient to offset the above mentioned pressures. This is equivalent to return on assets of 1.4% and return on equity of 1.%, compared to 1.9% and 16.%, respectively, in 14. While the ordinary credit costs have been improving, in the first half of 16 the bank recognised EUR 4.5 million special provisions related to the potential costs the bank could incur from mortgage borrowers discharging their loans under the walk-away law. As a result, the net profit of the bank declined to EUR 6 million, from EUR 48 million in the first half of 15. The result was positively impacted from a EUR 1million gain from the Visa Europe sale, in which Raiffeisen had a stake. 6 September 16

4 Adequate liquidity and a deposit funded profile Raiffeisen Bank remains fully deposit funded, with a gross loan-to-deposit ratio of 81% as of year-end 15, unchanged from year-end 14, as customer loans and customer deposits grew at a similar pace. Despite the above considerations, the bank has a substantial dependence on FX funding, with foreign currency liabilities accounting for about 4% of the bank's liabilities, mostly in the form of deposits, as of year-end 15. Although a large part of these deposits belong to retail customers, this high FX dependence creates high refinancing risk in times of increased volatility in currency markets, which could destabilise customer confidence and lead to deposit outflows. To reflect this risk, we adjust the Funding Structure score down by three notches to. In the meantime, the bank maintains a good liquidity position, with liquid banking assets (including government bonds) making up nearly 4% of tangible banking assets as at end-15. Notching Considerations Affiliate Support We assess the probability of parental support as high based on (1) the 99.9% ownership by RBI; () Raiffeisen's association with RBI's brand. Nevertheless, we note that because RBI's BCA is at the same level as that of its Romanian subsidiary at, Raiffeisen's ratings do not benefit from parental support uplift. Loss Given Failure Raiffeisen operates in Romania, which is a EU-member country. As such, under the Bank Recovery and Resolution Directive (BRRD) it is subject to an Operation Resolution Regime, similar to other EU countries. As a result, in accordance with our methodology, we apply our advanced LGF analysis, considering the risks faced by the different debt and deposit classes across the liability structure should the bank enter resolution. We assume residual tangible common equity of % and losses post-failure of 8% of tangible banking assets, a 5% run-off in junior wholesale deposits, a 6% proportion of junior deposits (EU average), a 5% run-off in preferred deposits, and assign a 5% probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions. This results in a Preliminary Rating Assessment (PRA) of two notches above the bank's adjusted BCA of, reflecting a very low lossgiven failure. Government Support We incorporate a low likelihood of government support for Raiffeisen's deposits in the event of its failure. This reflects the operational resolution regime which is likely to restrict the ability of the government to provide such support, even if it were willing to do so, requiring losses to be imposed on even senior creditors and large depositors under many circumstances. As a result, Raiffeisen s deposit ratings do not benefit from any systemic support from Romanian authorities. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default and () apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. The CR Assessment of Raiffeisen is positioned at Baa(cr)/Prime-(cr), three notches above the adjusted BCA of, based on the cushion against default provided to the senior obligations. In addition, the low probability of government support does not result in any uplift. 4 6 September 16

5 Rating Methodology and Scorecard Factors Exhibit Raiffeisen Bank SA Macro Factors Weighted Macro Profile Moderate - Financial Profile Factor 5 1% Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Solvency Asset Risk Problem Loans / Gross Loans 9.% b b Quality of assets Capital TCE / RWA 14.9% Capital retention Profitability Net Income / Tangible Assets 1.4% ba1 Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets ba 9.7% Deposit quality Liquid Resources Liquid Banking Assets / Tangible Banking Assets 9.9% Expected trend Key driver # Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Balance Sheet Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt Preference shares (bank) Senior unsecured holding company debt Dated subordinated holding company debt Junior subordinated holding company debt Preference shares (holding company) Equity Total Tangible Banking Assets in-scope (RON) 6,446,74 17,568 6,17 71 % in-scope.5% 75.6% 55.9% 19.7%.9% at-failure (RON) 8,867 1,19 16,689 4,69 71 % at-failure 8.% 67.9% 5.% 14.7%.9% 94 1,99.% 1% 94 1,99.% 1% 6 September 16 ba Baa ba-b1 -

6 Debt class Deposits Instrument Class De jure waterfall De facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe jure De facto notching guidance notching Assessment volume + ordination volume + ordination versus subordination subordination BCA (cr).%.9% ba1 Loss Given Failure notching Deposits Additional Preliminary Rating notching Assessment (cr) ba1 Government Local Currency rating Foreign Support notching Currency rating Baa (cr) -Ba1 Ba1 Source: Moody's Financial Metrics Ratings Exhibit 4 Category RAIFFEISEN BANK SA Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Moody's Rating Stable Ba1/NP Baa(cr)/P-(cr) ULT PARENT: RAIFFEISEN ZENTRALBANK OESTERREICH AG Bank Deposits Issuer Rating Bkd Senior Unsecured Bkd Senior Subordinate -Dom Curr Positive Baa/P- Baa(cr)/P-(cr) Baa Baa Ba PARENT: RAIFFEISEN BANK INTERNATIONAL AG Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Senior Unsecured Senior Subordinate -Dom Curr Commercial Paper -Dom Curr Other Short Term -Dom Curr Positive Baa/P- ba Baa(cr)/P-(cr) Baa Ba P- (P)P- Source: Moody's Investors Service 6 6 September 16

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